Taxation of trusts

Dear Friends

I need to have your views on the following.

One of our clients is a Society registered U/s.12A of the Income-tax Act, 1961. The details of Income derived from the property held under trust is computed as follows.

Income          :                                                           507527604

Applied for charitable purpose                                      421288947

Amount deemed to be applied exercising

option under clause 2 of explantion to section

11 (1)                                                                         10109516

( the ITO has been duly informed in writing

before due date for filing the return of income)

15% permitted accumulation                                        76129141

Excess / shortfall in application                                       Nil  

While passing the assessment order the ITO has reduced the 15% accumulation amount by Rs.1516428/- being the 15% of Rs.10109516/-( deemed to have been applied during the previous year)  and raised demand for Rs.514390/- considering Rs.1516428/- as the taxable income.

The amount of Rs.10109516/- has been spent during the next financial year as the society is not able to spend the required 85%.

Please give your views whether the ITO is correct in determining the demand.

Regards

K.L.Nandhini